SUMMARY (updated December 14, 1999)
The following document is an updated summary of my due diligence efforts on a stock I have followed very closely over the past 11 months. JORDEX is listed on the Toronto Stock Exchange (TSE) under the symbol JDX. I am a private investor who is not compensated by the company in any way, however I am currently a shareholder and I have contributed regularly to both the Silicon Investor and Stockhouse Bullboard threads.
This document is a substantial one, as I have taken extreme effort to verify and cross-reference all of the facts listed in it.
Note: All figures are given in Canadian Funds unless stated (conversion $1 U.S = ~0.68 Can.)
- The management of the company recently announced that they are restructuring the company based on a organizational model similar to that of companies such as ICGE, CMGI, SFE, idealab!, or Softbank. The company's business focus will be in the areas of technology, telecommunications and business-to-business e-commerce sectors.
- On November 22, 1999 they announced strategic alliances with two large and successful venture capital funds - The Argentum Group and MF Private Capital Inc. Both of these funds specialize in supplying early stage financing to technology, telecommunication and Internet companies. As a result of these alliances they will be provided with the opportunity to co-invest in all of the deals these funds participate in.
- They hold $21.5 million in assets ($19 million cash). They have no liabilities and they presently enjoy a positive cash flow.
-On June 21/99 they made a $1.5 million investment in Medsite.com, a much anticipated and potentially "HOT " Internet IPO coming out on the NASDAQ in the next quarter. On October 28, 1999 this investment was exchanged for 200,000 Class B Preferred Shares of Medsite.com.
- They recently made a $2.2 million investment in a new venture capital fund headed MF Private Capital, an investment affiliate of Manulife Capital Corporation. This fund specializes in companies in the communications infrastructure, technology, medical device technology, and Internet B2B sectors.
- On November 22, 1999, Jordex announced their intention to acquire 100% of Enviromation - a profitable private company with projected revenues of $5 million for the year ending December 31, 1999.
- Insiders have aggressively bought shares during the past year, and subsequent research shows that these same insiders have not sold a single share in the past year.
- Insiders and "friendly" hands currently own ~50% of the outstanding shares.
All questions can be forwarded to either Jim Graham (1-800-675-1749), investor relations for Jordex (jimgraham@jordex.com) or post them directly on the "JDX" thread on the Silicon Investor (https://www.siliconinvestor.com/subject.aspx?subjectid=12441).
Quote: fin-info.com
Discussion Topics
1. Background
2. Business Strategy and Opportunity
3. Management History
4. Strategic Alliances
5. Investment in MF Private Capital Fund
6. Medsite.com
7. Enviromation
8. Insider holdings / Friendly hands
9. Financials
10. Name Change
11. US Listing
12. Newsletters/Advisors
13. Technical Analysis
14. Lome de Niquel
15. RRSP Investment (Canadians only)
16. Lack of Promotion
17. Final Thoughts
1. BACKGROUND:
Jordex was incorporated in 1987. They received their TSE listing in January 1989. For much of their past, they were in the mining industry. With new management changes, extensive industry contacts, and a substantial bank balance, they are now looking to make the best use of their experience and available cash.
In 1996, Brian Hinchcliff (Chairman and CEO) negotiated a deal whereby the company sold one of their mining properties at the peak of the mining bull run (Loma de Niquel - see below). This property was sold for $22 million (Can.) leaving the company with an inflated treasury.
In a May 5, 1998 letter to shareholders the company stated that as a result of historically low metal prices the company considered leaving the mining industry. Earlier this year the company began unveiling its new business plan. Late in January, the company retained Hamilton Group LLC, of White Plains New York, to assist in the identification of new opportunities. Around that time, the president of the Hamilton Group, William Staudt, was appointed to the Jordex board of directors (http://www.jordex.com/news9901.html). In addition, well-known Swiss financier Carlo Civelli was also brought on as a director of the company (http://www.jordex.com/news9902.html).
In June 1999, in a deal set up by William Staudt, the company made an investment in Medsite.com, a much anticipated (and potentially "HOT") IPO coming out on the NASDAQ in the next quarter (see detail below). On October 15, 1999 the company announced that William Staudt was appointed President and co-CEO of Jordex (http://www.jordex.com/news9907.html).
On November 22, 1999 the company announced their plans to structure this company to follow a business model similar to ICGE, CMGI, SFE, idealab!, or Softbank. Within the same release, they also announced that they had agreed to enter into strategic alliances with two successful, large venture capital funds, the Argentum Group and MF Private Capital (http://www.jordex.com/news9909.html). These agreements are multi year term agreements. These agreements will provide the company with the opportunity to co-invest in all of the subsequent deals these funds elect to participate in (see details below). As part of this new business strategy, Dale M. Flanagan, a senior partner with TMP World wide, the parent of Monster.Com, will be appointed to Jordex's advisory committee and provide consultant services for the company (http://www.jordex.com/news9909.html). In addition, on November 22, 1999 they announced the intent to acquire 100% of Enviromation, a profitable private company with projected revenues of $5 million for the year ending December 31, 1999.
Over time, the company's business model has evolved and matured. They have shrewdly preserved their financial resources and have succeeded in adding tremendous strength to their management team. All of these factors will serve them well as they begin to maximize the opportunities afforded them by their tremendous partnerships and alliances with these two experienced and very successful venture capital firms.
2. BUSINESS STRATEGY AND OPPORTUNITY:
As a result of employing a similar business strategy, companies such as ICGE, CMGI, SFE, idealab! and Softbank have experienced tremendous growth in their share price. In a nutshell, these companies are presented with, and subsequently analyze, thousands of business plans a year. These plans are often presented to them by young private companies near the start of their growth phase. After using their in house team of analysts, these prospective investments are put through an extensive and thorough due diligence screening. These VC firms will often only invest in a select few of the thousands of companies they screen each year. These VC companies have differentiated themselves from the majority of the VC sector as they want to take part in helping the young companies grow and prosper. By this I mean that once they invest in a company they become actively involved, assisting them with developing business strategies, plans, and strategic and operational alliances. They often will also assist them to strengthen their operations, staffing, and management teams, etc. Their main goal is to assist the company to become a publicly traded market leader. In addition, these firms work hard to integrate their partner companies into a collaborative network that leverages the collective knowledge of the companies to help accelerate their growth. This is no different than what ICGE and CMGI do with their affiliated companies.
Companies such as ICGE, CMGI, SFE, idealab! and Softbank are often referred to as “incubator” companies. In a recent yahoo interview, James J. Cramer of the Street.com was asked what will be the next big tech trend: Portals, E-commerce, B2B, Networking, etc.? Mr. Cramer's reply was that incubators a la icge and cmgi that take stakes in other companies in his opinion would be the next big trend.
A good example of the potential growth for this type of business model is provided by performance of CMGI. A $1000 investment in CMGI's IPO less than six years ago would be worth ~ $500,000 at the recent closing price (http://finance.yahoo.com/q?s=CMGI&d=my). This exponential growth was largely the result of a combination of exceptional management - who could recognize companies with the potential for large growth, and the opportunity to invest in those companies right near the bottom. to illustrate this, in 1995 CMGI paid $2 million for 80% of Lycos; CMGI's remaining 17% stake is now worth over $900 million. The recent strength of the Internet Capital Groups (ICGE) IPO also demonstrates the large potential investors see in this business model (http://finance.yahoo.com/q?s=ICGE&d=1y).
Businessweek Article on CMGI: OCTOBER 25, 1999
techstocks.com
Wall Street Journal Article on SFE: OCTOBER 18, 1999- Message 11672353
Businessweek Article on ICGE: NOVEMBER 1, 1999 ISSUE
Message 11702414
As each of the above companies continues to grow in size, it is clear that it will be more difficult for them to maintain the exponential growth rate they have enjoyed over the past few years. It can be argued that because they currently demand multi-billion dollar market capitals, they have already gone through their tremendous growth phase. My belief is that by using this type of business model, it will be the smaller companies, such as Jordex (possessing exceptional management, strong business connections and capital resources) who have a greater likelihood of offering their shareholders the opportunity to realize a similar exponential growth of their investment. Jordex has already demonstrated through its first investment in Medsite.com that management is able to recognize, and invest in, companies with the potential for large growth.
One of the largest problems encountered by smaller companies attempting to employ this type of business strategy is that they don't have the resources necessary to attract, and then analyze, thousands of business plans a year. In addition, these smaller companies often are not given the opportunity to invest in early stage financing of "hot" companies. In the world of big business, it is the larger 'connected' companies that get the best deals, while the smaller companies are left to fight over the scraps. With these new strategic alliances, the company has in essence become on of the 'large' players. This is because they will be given the opportunity to participate in all the deals of two large, connected funds. Both the Argentum Group and MF Private Capital have significant deal flows, strong investment records and experienced internal staff who can perform extensive due diligence. These strategic alliances alone separate Jordex from other smaller companies attempting to emulate this type of business models.
3. MANAGEMENT HISTORY:
WILLIAM STAUDT (President, co-CEO)
Mr. Staudt was appointed President and co-CEO in October 1999. As their new president he brings some impressive credentials to the position.
Background - Mr. Staudt has been actively engaged in the merchant banking and buyout business for over 25 years. He is a graduate of both Yale University and the University of Michigan Law School. Earlier in his career, Mr. Staudt worked for A.G. Becker Inc., a merchant banking firm that was later taken over by Merrill Lynch. As a principal with Hamilton Capital Partners (located in White Plains, NY), which he helped found in 1990, he has been involved in numerous in leveraged buyouts throughout his career. Mr. Staudt's past business record is very impressive. An interesting excerpt from a recent CSW Streetwire report that illustrates this:
"he sponsored the acquisition of a company for an estimated $15 million (US) through a financing deal. The company was sold three years later for approximately $240 million (US)". His ability to secure an investment in a hot Internet IPO (Medsite.com) coming out in the next quarter demonstrates the powerful connections Mr. Staudt has in the business sector. (https://www.siliconinvestor.com/readmsg.aspx?msgid=11671281) -
Mr. Staudt, has a tremendous amount of investment experience. Many of the new Internet or technology companies are being run by the same young entrepreneurs who started them. These people are experts in the areas that are core to their business. However they often require guidance as they grow their business past the start up stage.
What many of them require is guidance in the preparation of financing, business plans, strategic long term visioning, and mergers & acquisitions. Bill Staudt brings to the table a maturity and depth of experience in all of these areas. As a result of Mr. Staudt's years of experience, he has made many friends and business acquaintances who know of his abilities. For a growing company, (which is about to go public) this skill set of is exactly what these firms need.
The depth of Mr. Staudt's business connections were demonstrated by the recent announcement of the strategic alliances between the company and The Argentum Group and MF Capital. These strategic alliances were only possible because of personal relationships between Mr. Staudt and the senior management of funds. These are not partnerships made as a result of contacts through a business broker.
During the past 12 months Mr. Staudt, through his private account and Hamilton Capital Partners, has purchased 1,300,000 shares and presently holds options to purchase another 1,000,000 shares. One of the first rules I follow when researching a company, and then taking a position in it, is make sure that insiders/directors have a large stake in the company and are buying shares. Mr. Staudt's current purchases have given me a strong sense of confidence and trust in the direction the company is heading.
BRIAN HINCHCLIFF (Chairman and co-CEO)
Mr. Hinchciff is the former president of the company and is presently Chairman and co-CEO. Mr. Hinchcliff has served as a director of Jordex since August 20, 1990. He also has an impressive history and has a wealth of experience upon which he can draw upon.
Background - Mr. Hinchcliff is a former Vice President at Goldman Sachs (J. Arron division). He has served as a director for numerous successful resource companies and was a co-founder of American Pacific and Mining Co. He is President of AMPAC Group, a private Florida company which, during the past decade, has purchased several large blocks of shares in JDX. Mr Hinchcliff demonstrated his business savvy by securing the sale of Loma de Niquel for $22 million at the peak on the mining boom in 1996.
Mr. Hinchcliff presently holds 2,274,771 shares, and according to the latest Sedar report he also holds 225,000 options. From information that I was able to obtain from the last 3-years of Sedar reports, it appears that even as the company climbed to almost $4 in 1997, Mr. Hinchcliff did not sell any of his shares in JDX. Nor did he sell any shares as it fell back to the present price. Mr. Hinchcliff's enormous confidence that he has in the company and the inherent value of the stock was demonstrated by his actions through both this climb and recent fall in share value. I am confident that he feels that they will be able to achieve significantly higher share prices in the future.
CARLO CIVELLI
In order to move a company's share price to high levels, it is necessary for the company to ensure that the investment community knows about, and understands, the tremendous potential of their business plans - and a company's ability to carry them out. To achieve this, it often requires a well-planned and intense promotion to bring the stock to the attention of millions of investors and fund managers. Companies, their promoters, and a select few "very dedicated private investors" who are effective at doing this are generally successful at generating a large, and loyal following. Unfortunately, without good promotion behind it, a company often cannot generate high share prices despite having great potential and management within the company.
The individual who will likely be coordinating much of Jordex's promotion is a well known, (and well connected) Swiss financier - Carlo Civelli. Mr. Civelli was brought on as a director in JDX on Jan. 20, 1999 (http://www.jordex.com/news9902.html). He has been involved in some of the biggest promotions in Canada in the past 20 years, and he has been involved with several large US based promotions as well. Mr. Civelli is also very well known for his success in arranging large European based financing for companies he is involved with.
His first big mark was made in Vancouver in 1981-82, when he and Doug McRae helped to make Breakwater Resources (BWR) one of the market successes of the year. Over the many years that he has been involved with selected Canadian companies, the percentage of these companies whose share price increased dramatically is impressive (e.g. NMR, SLU, AHV, UP, RDL etc - all TSE and VSE companies). His involvement also includes several big U.S names (Novadigm - NVDM and International Cablecasting). What is most impressive is that many of these companies have gone up 500% or more in the year after Mr. Civelli purchased his shares.
The last big promotion I can connect Mr. Civelli to is NIR on the TSE. Prior to starting his promotion efforts, Mr Civelli held approximately 2.65 million shares, acquired at 15 to 21 cents. His holding in this stock included a large private placement at .20 which he took down several months before the promotion started (Source - CSW Streetwire report, June 1998). In a three month period, from March to May 1998, NIR's went on an amazing run hitting a high of $4.88 on May 6. At the peak of this run, Mr. Civelli's initial investment translated into a more than a 2500% gain.
This is not Mr. Civelli's first involvement with Jordex. In November 1990, Mr. Civelli, through Clarion Finanz AG, purchased 277,000 shares at .90 with attached warrants. Since Mr. Civelli was not a director of the company at the time it is unclear how many shares he may have purchased on the open market prior to, or after, the private placement. After Mr. Civelli's private placement, Jordex climbed over 350% over the next year. On July 1991, JDX arranged a $5.75 Million US financing with a group of European investors at a price of $3.15 (likely headed by Mr. Civelli). (http://www.intelligentspeculator.com/charts/19991024/1200/civ2.gif). However, as a result of disappointing initial drill results the company was not able to remain at this new found high. Through his private account and his Zurich-based financial company - Clarion Finanz AG, Mr. Civelli now owns 1,731,666 shares of Jordex Resources. 500,000 of these shares were purchased through a private placement on February 8, 1999 at .60 (http://www.jordex.com/news9904.html). At the time of this purchase Jordex was selling just below .60. As a result, Mr. Civelli did not receive his shares at a discount to market value. In addition, Mr. Civelli holds options to buy an additional 600,000 shares.
After conducting my research, and following his record, I believe that Mr. Civelli's large holdings in the company speak volumes about where the share price is likely heading. Over the past few weeks, as I have placed my usual phone calls to JDX management to ask my questions, they sound more upbeat and confident in explaining where they are in their timing. I now believe that they must be close to being ready to announce their specific investments and plans going forward. In the right hands, I am confident that their story and their portfolio of upcoming deals will be a very easy to sell to the investment community. I find it encouraging knowing that the majority of shares held by Mr. Civelli have been purchased very near to the current share price. In addition, I also believe that one of the primary reasons Mr. Civelli was brought on board was to secure financing with European shareholders at far higher prices.
JOHN FAIRCHILD (Vice-President Finance)
John Fairchild joined Jordex in 1994. Mr. Fairchild holds degrees in Math & Economics, from Carleton University, Ottawa and is a Chartered Accountant. Mr. Fairchild was formerly a general practice partner (14 years) with Coopers & Lybrand (now Pricewaterhouse Coopers) in Vancouver, BC. Pricewaterhouse Coopers provides solutions and strategies to businesses, public and private, in numerous industries including communication
JAMES GRAHAM (Vice-President Investor Relations)
James Graham joined Jordex in 1995. Mr. Graham has spent over 14 years representing Canadian and US public companies.
DALE FLANAGAN (Consultant / Advisory Committee)
On November 22, 1999 the company announced that has entered into a consulting agreement with Dale M. Flanagan, a senior partner with TMP Worldwide, the parent of Monster.Com. Once formalized, Mr. Flanagan will also be appointed to the Jordex's advisory committee. Mr. Flanagan has been active in the executive search industry for over 25 years.
TMP Worldwide Inc. (NASDAQ: TMPW, Market Capital $3.7 Billion), is the world's largest recruitment advertising agency network, and one of the world's largest search and selection agencies. TMP Worldwide, head quartered in New York, is also the world's largest yellow page advertising agency and a provider of direct marketing services. The company's clients include more than 80 of the Fortune 100 and more than 400 of the Fortune 500 companies (http://www.tmp.com). Monster.com (www.monster.com), the flagship product of the Interactive Division of TMP Worldwide, is the leading, global on-line network for careers, connecting the most progressive companies with the most qualified career-minded individuals.
As new companies go through a large growth spurt, there is one very important factor that needs to be handled properly. This factor is the quality, experience and skill of their human resources. New companies cannot expand to their full potential without the proper team of driven and qualified personal behind the company. New companies are continually searching for, and hiring staff to support their growth. With the addition of Mr Flanagan, and the contacts he brings to the organization, Jordex will be able to offer the companies in which it invests access to a wealth of experience and talent that they will need to grow and thrive as their businesses mature. In a recent Press Release Mr. Hinchcliffe stated that, "Dale's experience and contacts should significantly benefit Jordex's ability to evaluate prospective investments and to assist the management teams of companies in which we invest."
The move to bring Mr. Flanagan on board also demonstrates that the company does not intend to rely on its larger strategic partners to support the companies they invest in. As the company expands it can be expected that they will continue to add key management members who each have the expertise and business connections in a variety of fields. This team will be offering support and assistance to their portfolio of growth companies as they grow and mature. And who better to assist the company in finding those people than Mr. Flanagan.
UNITED STATES CONNECTIONS
People may assume that because they have a field office in Vancouver, British Columbia, then Jordex must just be a small Canadian based company. However, when you dig deeper, you will find that most of their management team - Mr. Staudt, Mr. Hinchcliff, Mr. Graham and Mr. Civelli all have set up a base of operations in New York City, NY. It is only John Fairchild who operates out of the Vancouver, B.C. office. The rest of the management team has maintained their residence (and more importantly their corporate connections) within the United States. What is more interesting is that the majority of Mr. Staudt's previous business activities have primarily involved dealings with U.S based companies. On top of this, I have found that Mr. Civelli has also had a great deal of experience with numerous US based companies as well. He has also held seats on the boards of many of these same companies. To add to this, I have found that Mr. Graham's depth and breadth of experience in previous Investor Relation positions have also been with US based companies. I believe that the extensive relationships and experience the management team has developed within the United States will serve them well as they unveil their plans in the near future.
In addition to US connections, Mr. Civelli is also very well known for his European connections and ability to secure large financing with European investors. Prior to coming to North America, Mr. Civelli severed as Vice President of a European NYSE brokerage firm for 7 years and also severed as Vice-President with New Province Securities in Zurich.
In summary, I believe that it is important to stress that this story will not just be targeted to a Canadian audience. I am confident that many US and European investors and investment firms will be eager to hear what their friends at Jordex have been up to. |
